Great blog posts about macroeconomics

The Economic Impact of the Kentucky Derby

This past weekend was the 143rd running of the Kentucky Derby at Churchill Downs Racetrack in Louisville, Kentucky. Known as the “Greatest Two Minutes in Sports,” I thought it would be interesting to see the economic impact that the Kentucky Derby has beyond those two electrifying minutes.

According to my research, there are essentially two ways that the Derby provides an economic stimulus to the region: first, from the race itself (by way of tourism, ticket sales, etc.) and, secondly, from wagers placed on the races—both those legally recorded and those that were not placed through an official Las Vegas book.

The Kentucky Derby Museum, the non-profit organization that collects information on the race and preserves its history, released financial figures about the race. The Museum deems the Derby as an “economic event,” with the most recent study finding that the Derby has a $217 million immediate impact on the region. According to the same study, the equestrian industry has an economic impact of just over $3 billion in the state of Kentucky alone. The industry generates an employment opportunity to over 55,000 people in Kentucky as well. Clearly, the equine industry is a massive part of Kentucky’s economy, and the main-event, the Kentucky Derby, is the most important part of the industry.

Determining the exact economic impact that gambling on the races at the Kentucky Derby is significantly more tricky. This is due to the fact that so many wagers are placed illegally, or through any means other than an officially-licensed Las Vegas casino. According to the Washington Post, near $4 billion is wagered legally in Las Vegas every year. However, anywhere from $80 to $380 billion is wagered illegally—the wide range in estimates goes to show just how much money is not adequately being regulated. The official numbers for the 143rd Kentucky Derby have yet to be officially released yet, but the numbers from 2015 and 2016 paint a consistent picture of what economists can expect. In 2015, a record-breaking $194.3 million was wagered legally, while estimates for illegal wagers are many times more than that. In 2016, $192.6 million was wagered legally, a slight decrease from 2015. Expectations for 2017’s Derby are in the same range.

Clearly the Kentucky Derby plays a significant economic role in the state of Kentucky and in the United States in general. Most of the economic stimulus to Kentucky is through that of the equine industry, while the larger economic impact is through the black-market of sports gambling.